1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) [NAME REDACTED] ) ISCR Case No. 16-01488 ) Applicant for Security Clearance ) Appearances For Government: Carroll Connelley, Esq., Department Counsel For Applicant: Pro se ______________ Decision ______________ BORGSTROM, Eric H., Administrative Judge: Applicant did not mitigate the financial considerations security concerns. Eligibility for access to classified information is denied. Statement of the Case On September 16, 2016, the Department of Defense (DOD) issued a Statement of Reasons (SOR) to Applicant detailing security concerns under Guideline F, financial considerations. The action was taken under Executive Order (EO) 10865, Safeguarding Classified Information within Industry (February 20, 1960), as amended; DOD Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended (Directive); and the adjudicative guidelines (AG) implemented by the DOD on September 1, 2006. Applicant responded to the SOR on October 26, 2016, and she requested a hearing before an administrative judge. The case was assigned to me on January 25, 2017. The Defense Office of Hearings and Appeals (DOHA) issued a notice of hearing, scheduling the hearing for March 8, 2017. I convened the hearing as scheduled. Government Exhibits (GE) 1-6 were admitted without objection. Applicant testified, and 2 the record remained open until March 29, 2017. Applicant submitted eight documents, which were admitted into evidence as Applicant’s Exhibits (AE) A-H, without objection.1 I received the hearing transcript (Tr.) on March 27, 2017. Findings of Fact The SOR alleges Applicant’s failure to file her federal and state income tax returns for several years (SOR ¶¶ 1.a. and 1.b.) and three delinquent debts (SOR ¶¶ 1.c.-1.e.). Applicant in effect denied all five allegations. After a thorough and careful review of the pleadings and exhibits, I make the following findings of fact: Applicant is 74 years old. She received a bachelor’s degree in physics and math in 1964 and received a master’s degree in math in 1968. She was married from 1964 to 1989, and she has a 46-year-old daughter.2 Since 1985, Applicant has served as the President and CEO of a computer- consulting business. In about 2005, the business experienced a significant downturn as it was unable to obtain new U.S. Government contracts. She took out personal loans to pay business expenses. The business remains open, but it has not generated income since about 2005. As a result, she obtained part-time employment with a DOD contractor in 2010.3 Applicant has been employed part time as a facility security officer for a DOD contractor since January 2010. Her net pay is approximately $1,500 to $2,000 per month. She estimated that she made about $20,000 from her part-time employment in 2016. She is classified as a consultant and has not had any taxes withheld during her employment. She agreed that she needed to pay taxes on that income, but she believed that her tax deductions exceeded any liability. She has also received Social Security for the past six years at $2,200 per month.4 Applicant filed her federal income tax returns for tax years 2005 and 2007 about two years late. She did not file her federal and state income tax returns for tax years 2009 through 2014 until March 29, 2017. There is no evidence that she has filed her federal returns for tax years 2008 and 2015 or her state returns for tax years 2007, 2008, and 2015. She testified that she spoke with an IRS representative in about 2014 and on a prior unrecalled date and the representative informed her that her income level exempted her from filing a return. Applicant had no documentary evidence to corroborate these representations or her exempted status. She never contacted the state revenue department, but relied on her conversations with the IRS representative 1 Applicant’s post-hearing submissions included a cover letter (AE H) and seven attachments pre-marked as AE A-G. 2 GE 1; GE 6. 3 GE 1; GE 6. 4 GE 1; GE 6; Tr. 55-56, 60-61. 3 to conclude that she was exempt from filing a state income tax return.5 Pursuant to IRS Publication 501, Applicant’s income from her part-time employment exceeded the minimum threshold requiring her to file a federal income tax return.6 After the hearing, Applicant submitted excerpts of her federal and state income tax returns for tax years 2009 through 2014, all dated March 29, 2017. The returns listed the income from her retirement account and Social Security, but her returns did not reflect her income from her part-time employment with the DOD contractor. She testified that she received income from her part-time employment for the DOD contractor for which she receives a Form 1099 and from which no taxes were withheld. There is no evidence that she disclosed this income on her federal and state income tax returns.7 Applicant’s credit card account in SOR ¶ 1.c. was placed for collection at least three years ago in the approximate amount of $4,102. In her response to the SOR, she claimed to have settled this debt years ago; however, she provided no documentation. Following the hearing, she indicated that she was negotiating a settlement with the collection attorney on this account. There is no evidence of any payments on this delinquent account.8 The delinquent utility account in SOR ¶ 1.d. was placed for collection in the approximate amount of $136. In her response to the SOR and at hearing, Applicant denied any knowledge of this debt. After the hearing, she mailed a $136 check to the creditor.9 As to the judgment in SOR ¶ 1.e., this judgment was entered against Applicant’s business in December 2011 in the approximate amount of $48,288. Applicant never used this business credit card for any personal expenses, and the business was an S- corp. Department Counsel presented no evidence to demonstrate personal liability attached.10 At the time of the hearing, Applicant was five months behind on her mortgage- loan payments, and she is trying to refinance this loan. Between 2005 and 2012, she 5 IRS Pub. 501 for TY2010 requires individuals with an income over $10,750 must file a federal income tax return. That minimum amount increased each year and was $11,900 for TY2016. These IRS publications are openly available online at https://www.irs.gov/pub/irs-prior/p501--2010.pdf and https://www.irs.gov/pub/irs-pdf/p501.pdf. These IRS documents are admitted into the record as Administrative Exhibits (AX) I. 6 Tr.31, 32, 35-37, 39-40. 7 AE A; AE B. 8 Response to SOR; GE 4; AE D. 9 Response to SOR; AE D. 10 Tr. 46, 49. 4 did not have health or dental insurance, which resulted in a significant expense for dental work. She is making monthly payments on that dental bill. She provided a personal financial statement reflecting a net monthly remainder of approximately $1,350.11 Applicant submitted four character references detailing her extensive volunteerism and leadership with non-profit organizations supporting women, children, and minorities, within her church, and with other advocacy groups. A professional colleague for over 30 years attested to her exemplary work performance and character.12 Policies When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines. In addition to brief introductory explanations for each guideline, the adjudicative guidelines list potentially disqualifying conditions and mitigating conditions, which are to be used in evaluating an applicant’s eligibility for access to classified information. These guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, administrative judges apply the guidelines in conjunction with the factors listed in the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. According to AG ¶ 2(c), the entire process is a conscientious scrutiny of a number of variables known as the “whole-person concept.” The administrative judge must consider all available, reliable information about the person, past and present, favorable and unfavorable, in making a decision. The protection of the national security is the paramount consideration. AG ¶ 2(b) requires that “[a]ny doubt concerning personnel being considered for access to classified information will be resolved in favor of national security.” Under Directive ¶ E3.1.14, the Government must present evidence to establish controverted facts alleged in the SOR. Under Directive ¶ E3.1.15, the applicant is responsible for presenting “witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by the applicant or proven by Department Counsel.” The applicant has the ultimate burden of persuasion to obtain a favorable security decision. A person who seeks access to classified information enters into a fiduciary relationship with the Government predicated upon trust and confidence. This relationship transcends normal duty hours and endures throughout off-duty hours. The Government reposes a high degree of trust and confidence in individuals to whom it grants access to classified information. Decisions include, by necessity, consideration of the possible risk the applicant may deliberately or inadvertently fail to safeguard 11 AE F; AE G; Tr. 53-54. 12 AE C. 5 classified information. Such decisions entail a certain degree of legally permissible extrapolation of potential, rather than actual, risk of compromise of classified information. Section 7 of EO 10865 provides that adverse decisions shall be “in terms of the national interest and shall in no sense be a determination as to the loyalty of the applicant concerned.” See also EO 12968, Section 3.1(b) (listing multiple prerequisites for access to classified or sensitive information). Analysis Guideline F, Financial Considerations The security concern for financial considerations is set out in AG ¶ 18: Failure or inability to live within one’s means, satisfy debts, and meet financial obligations may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual’s reliability, trustworthiness and ability to protect classified information. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. Compulsive gambling is a concern as it may lead to financial crimes including espionage. Affluence that cannot be explained by known sources of income is also a security concern. It may indicate proceeds from financially profitable criminal acts. The guideline notes several conditions that could raise security concerns under AG ¶ 19. The following are potentially applicable in this case: (a) inability or unwillingness to satisfy debts; (c) a history of not meeting financial obligations; and (g) failure to file annual Federal, state, or local income tax returns as required or the fraudulent filing of the same. Applicant failed to timely file her federal income tax returns for tax years 2005 and 2007 through 2014. She failed to timely file her state income tax returns for tax years 2007 through 2014. She had two delinquent debts (SOR ¶¶ 1.c. and 1.d.) totaling approximately $4,238. Department Counsel did not establish that Applicant is personally liable for the judgment alleged in SOR ¶ 1.e. The Government produced substantial evidence to raise the disqualifying conditions in AG ¶¶ 19(a), 19(c), and 19(g), thereby shifting the burden to Applicant to produce evidence to rebut, explain, extenuate, or mitigate the facts.13 Conditions that 13 Directive ¶ E3.1.15. See ISCR Case No. 02-31154 at 5 (App. Bd. Sep. 22, 2005) (An applicant has the burden of proving a mitigating condition, and the burden of disproving it never shifts to the Government.). 6 could mitigate the financial considerations security concerns are provided under AG ¶ 20. The following are potentially applicable: (a) the behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur and does not cast doubt on the individual’s current reliability, trustworthiness, or good judgment; (b) the conditions that resulted in the financial problem were largely beyond the person’s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation), and the individual acted responsibly under the circumstances; (c) the person has received or is receiving counseling for the problem and/or there are clear indications that the problem is being resolved or is under control; (d) the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts; and (e) the individual has a reasonable basis to dispute the legitimacy of the past-due debt which is the cause of the problem and provides documented proof to substantiate the basis of the dispute or provides evidence of actions to resolve the issue. Applicant failed to timely file her federal and state income tax returns, as required by law, for several years. Several tax returns remain unfiled, and one debt remains unresolved. As discussed above, the recently-filed tax returns all omit Applicant’s income from her part-time employment from which no taxes were withheld. As a result, all of these returns are incorrect on their face. AG ¶ 20(a) does not apply. The application of AG ¶ 20(b) requires both that (1) Applicant’s financial indebtedness resulted from circumstances beyond her control and (2) Applicant acted responsibly under the circumstances.14 Applicant’s business downturn in 2005 contributed to her financial delinquencies, as she took out personal loans and refinanced her home to pay business expenses. Because these circumstances hindered her ability to address her delinquent debts, they constitute circumstances beyond her control in the context of AG ¶ 20(b). AG ¶ 20(b) also requires that an applicant act responsibly under the circumstances.15 Applicant’s failure to timely file her income tax returns cannot be 14 See ISCR Case No. 07-09304 at 4 (App. Bd. Oct. 6, 2008). 15 See ISCR Case No. 08-06567 at 3 (App. Bd. Oct. 29, 2009) (“All that is required is that an applicant act responsibly given his circumstances and develop a reasonable plan for repayment, accompanied by ‘concomitant conduct,’ that is, actions which evidence a serious intent to effectuate the plan.”). 7 attributed to her business downturn. She claimed to have relied upon information provided by an IRS representative to conclude that she did not need to file her federal and state income tax returns; however, she has failed to provide documentation to substantiate these claims. In addition, although she denied the debts alleged in SOR ¶¶ 1.c. and 1.d., she failed to take any steps prior to the hearing to contact these creditors and resolve any dispute. Applicant failed to demonstrate that she acted responsibly in addressing her delinquent debts. Therefore, AG ¶ 20(b) does not apply. There is no record evidence of credit counseling. Although Applicant’s monthly budget indicates that she is able to pay her monthly expenses, she is behind on her mortgage-loan payments and several tax returns remain unfiled. More importantly, as discussed above, her recently-filed federal and state returns omit her income from her employment with a DOD contractor. On their face, these tax returns are incorrect. Given the ongoing concerns about Applicant’s tax returns, AG ¶ 20(c) does not apply. The concept of good faith Arequires a showing that a person acts in a way that shows reasonableness, prudence, honesty, and adherence to duty or obligation.”16 Applicant satisfied the debt in SOR ¶ 1.d. She filed some of her tax returns, though they appear to omit significant income. Several tax returns remain unfiled, and one delinquent debt remains unresolved. AG ¶ 20(d) partially applies. To the extent Applicant disputes the debts in SOR ¶¶1.c. and 1.e., she has not demonstrated a reasonable basis to dispute the legitimacy of the debt in SOR ¶ 1.c. As discussed above, Department Counsel has not established that Applicant has personal liability on the unpaid judgment (SOR ¶ 1.e.), and Applicant provided documentation to show the judgment was entered against the business. AG ¶ 20(e) partially applies. Applicant failed to timely file her federal and state income taxes for several years. Although she filed several returns following the hearing, these returns omit her income from her employment with a DOD contractor, and several returns remain unfiled. Given her inaction in addressing her delinquencies for several years and her ongoing tax problems, I find that financial considerations concerns remain. Whole-Person Concept Under the whole-person concept, the administrative judge must evaluate an applicant’s eligibility for a security clearance by considering the totality of the applicant’s conduct and all relevant circumstances. The administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2(a): (1) the nature, extent, and seriousness of the conduct; (2) the circumstances surrounding the conduct, to include knowledgeable participation; (3) the frequency and recency of the conduct; (4) the individual’s age and maturity at the time of the conduct; (5) the extent to 16 See ISCR Case No. 08-12184 at 10 (App. Bd. Jan. 7, 2010) (Good-faith effort to resolve debts must be evidenced by a meaningful track record of repayment). 8 which participation is voluntary; (6) the presence or absence of rehabilitation and other permanent behavioral changes; (7) the motivation for the conduct; (8) the potential for pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or recurrence. Under AG ¶ 2(c), the ultimate determination of whether to grant eligibility for a security clearance must be an overall commonsense judgment based upon careful consideration of the guidelines and the whole-person concept. I considered the potentially disqualifying and mitigating conditions in light of all the facts and circumstances surrounding this case. I have incorporated my comments under Guideline F and the factors in AG ¶ 2(c) in this whole-person analysis. Applicant is a mature, well-educated professional, who is highly regarded for her work performance, volunteerism, and leadership. Nonetheless, she has failed to act in a financially responsible manner with regards to her taxes. After years of not filing her federal and state returns, her recently-filed returns omit her significant income from her part-time employment and will require corrections. As a result, the totality of the record evidence leaves me with questions and doubts as to Applicant’s eligibility and suitability for a security clearance. I conclude Applicant did not mitigate the financial considerations security concerns. Formal Findings Formal findings for or against Applicant on the allegations set forth in the SOR, as required by section E3.1.25 of Enclosure 3 of the Directive, are: Paragraph 1, Guideline F: AGAINST APPLICANT Subparagraphs 1.a.-1.c.: Against Applicant Subparagraphs 1.d.-1.e: For Applicant Conclusion In light of all of the circumstances presented by the record in this case, it is not clearly consistent with the national interest to grant Applicant eligibility for a security clearance. Eligibility for access to classified information is denied. ________________________ Eric H. Borgstrom Administrative Judge